Market Value Reduction

redouma

Hi

Please forgive me if this is not the correct forum board - please feel free and move to correct one.

Have a Prudential Initial Charge Bond - With Profits which have held for 7 years, although the gains havent been great given the initial investment we knew it would be a long term plan. It was our intention to leave this until we were (if, God willing we live that long) around age 70, currently age 62. However we received our yearly statement which showed a £12,000 reduction on the 2008 figure. Obviously extremely worried so phoned up on Thursday to see what would be the cash in value and was told that a MVR would be also deducted approximately £9,500 and also since our January statement the bond was further reduced by another £4,000.

What I would like to know how can it be lawful that these companies can apply this MVR rule as and when they want without notice just because markets arent running their way and in order to stop customers withdrawing their cash. The only thing we were told we would be penalised about at the start of this plan was if we withdrew before 5 years which obviously has now passed. Has anyone challenged this rule and if so what was the outcome.

Sorry this has been so long.

opinions4u

redouma wrote: »

What I would like to know how can it be lawful that these companies can apply this MVR rule as and when they want without notice just because markets arent running their way and in order to stop customers withdrawing their cash.

Yes. Failure to do so would mean the fund could go bust and the last people to pull out would lose all their money.

The only thing we were told we would be penalised about at the start of this plan was if we withdrew before 5 years which obviously has now passed.

If you can show this, you may have a case for mis-selling. Although I doubt it.

Reaper

What type of investment is it? Unit linked ones normally just fluctuate with the market and have no MVR whereas With Profit ones tend not to go down but a MVR is applied instead in times of poor performance. Is your a mixture of the two perhaps?

While you can't get all your money out a quick Google search says you can withdraw 5% per year with no penalty:

For the with-profit fund MVAs will not apply on death or regular withdrawals up to 5%pa

... if that's the same terms and conditions as when you took yours out.

redouma

The Bond is a With Profits Prudence Bond (Initial Charge) no unit linked source. What its says is ' that MVR would not be applied if death occurs' but I want to spend our hard earned money now and not ensure that beneficiaries will get all of the investment without a deduction of MVR. Given that 5% is allowed to be withdrawn without penalty may be fine but our concerns are now how these companies are increasing the MVR because of the market crisis. If we did withdraw they say the MVR is applied because in allowing us to withdraw would be unfair on investors that stay with them and of course in the current climate our bond is now heading towards losing money (capital invested) as well as the gains it has already lost. Its a dilemia pull out and suffer a further £9,500 loss or keep it with the Prudential and hope that our initial investment does not erode. Given that this was sold to us as a ultra safe/low risk way of saving we now realise at the time perhaps we should have asked our FA more prudent questions.

dunstonh

What I would like to know how can it be lawful that these companies can apply this MVR rule as and when they want without notice just because markets arent running their way and in order to stop customers withdrawing their cash.

Because its in the terms and conditions of the investment fund. Its not hidden. Its not unknown. Indeed, when you took it out 7 years ago, that was just after a major decline and many had MVRs on them then.

although the gains havent been great

That surprises me. The Pru ones on my books have been doing fine and outperforming cash.

I want to spend our hard earned money now and not ensure that beneficiaries will get all of the investment without a deduction of MVR.

So you have changed your objective from when you took it out.

If we did withdraw they say the MVR is applied because in allowing us to withdraw would be unfair on investors that stay with them

Which is quite logical and why the MVR exists.

and of course in the current climate our bond is now heading towards losing money (capital invested) as well as the gains it has already lost.

That is not technically possible with the product you have. You cannot get less than the amount you invest, plus annual bonuses. Only the terminal bonus can be taken away from you and thats the bit that has gone down.

Its a dilemia pull out and suffer a further £9,500 loss or keep it with the Prudential and hope that our initial investment does not erode.

The current bonuses are more than cash savings and if you dont need the money you shouldn't take it unless you feel you want to spend the lot in the short term and assume its going to get worse.

Given that this was sold to us as a ultra safe/low risk way of saving we now realise at the time perhaps we should have asked our FA more prudent questions.

There are capital protections but it is not ultra safe. Your money is safe providing you dont need to draw it out at an inappropriate time.

dunstonh

Rollerball wrote: »

With-profit bonds have been discredited for about 5 years now because of all this MVR nonsense. It's a good excuse to reduce payouts as much as they want.

The exceptions are NU and Pru though who have been turning in good returns and still have good potential. The rest are mostly useless though.

redouma

Hi dunstonh

Yes our objectives have altered since the policy was taken out but I would disagree with you about the returns being good as we invested £66K the redemption figure quoted including all bonuses etc and minus the MVR was £74,684. Now had we placed this money into a savings account fixed at say 3.5% net spread over the 7 years this would have equated to £16,170 compared to the 'gain' of £8,684. So... doesnt this suggest that are underperforming or have I totally missed the plot?

Geoff_W

Look in the T&C's to see if there is a MVA-free get-out clause. There is often a 24hr window of opportunity, usually on the 10th anniversary, when you can cash-in the product without penalty. However, you might not want to wait another 3yrs.

That's the judgement you have to make - crystalise your losses now and take the MVA hit, or wait 3yrs to avoid the MVA and hope the value hasn't gone down more than today's MVA.

Geoff

dunstonh

I would disagree with you about the returns being good as we invested £66K the redemption figure quoted including all bonuses etc and minus the MVR was £74,684.

You are taking off the MVR. If that wasnt taken off, what would it be?

The MVR is only charged to policyholders that choose to withdraw at the wrong time. When the markets recover in the future, the MVR will go. Its only the drops from October last year that have activated the MVR so you wont need a fully return to 7000 on the FTSE.

So... doesnt this suggest that are underperforming or have I totally missed the plot?

Yes. You are comparing a savings rate that doesnt zig zag against an investment that does. At times the investment will be better than cash and at times it will be worse. The longer you leave it the less likely it will be worse. You are still in that period that can still see it being worse. Effectively you had a zig, now you have a zag. Rather than wait for the next zig, you want to take it out.

redouma

The MVR is only charged to policyholders that choose to withdraw at the wrong time. When the markets recover in the future, the MVR will go. Its only the drops from October last year that have activated the MVR so you wont need a fully return to 7000 on the FTSE.


Hi Dunstonh

Appreciate all info and rationalising found it interesting to note you say MVR was only activated because of the drops since last October. I have looked back at all our statements and notice that Pru had deducted MVR on our January 2008 statement looks like they knew something.

dunstonh

Appreciate all info and rationalising found it interesting to note you say MVR was only activated because of the drops since last October. I have looked back at all our statements and notice that Pru had deducted MVR on our January 2008 statement looks like they knew something.

Thats very early on. What was the date yours was originally taken out?